The average long-term U.S. mortgage rate has seen a slight increase for the second consecutive week, reaching its highest level in four weeks. According to Freddie Mac, a mortgage buyer, the average rate on a 30-year mortgage is now at 6.66%, up from 6.62% last week. Comparatively, a year ago, the rate was at 6.33%.
On the other hand, borrowing costs for 15-year fixed-rate mortgages, which are popular among homeowners looking to refinance their loans, have actually eased this week. This has lowered the average rate to 5.87%, down from 5.89% in the previous week. Looking back a year, the average rate for a 15-year mortgage stood at 5.52%.
The recent increase in the average rate for a 30-year home loan comes after a period of decline that lasted for nine weeks towards the end of last year. This previous downward trend helped to bring down the average rate after a surge in late October, which saw it reach 7.79%, the highest level since late 2000.
Despite the recent increase, the current average rate for a 30-year home loan is still significantly higher than it was just two years ago when it stood at 3.45%. This notable difference has contributed to a limited supply of previously occupied homes on the market, as homeowners who secured lower rates are dissuaded from selling. Furthermore, it has also affected homebuyers' purchasing power, especially considering that home prices have continued to rise while sales of previously occupied U.S. homes dropped by over 19% in the first 11 months of last year.
Freddie Mac's chief economist, Sam Khater, explains, 'Mortgage rates have not moved materially over the last three weeks and remain in the mid-6% range, which has marginally increased homebuyer demand. Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers.'
The overall downward trend in mortgage rates since late October has been somewhat aligned with a pullback in the 10-year Treasury yield, which lenders use as a benchmark for loan pricing. The yield had seen a significant increase in mid-October, reaching its highest level since 2007. However, it has since fallen due to hopes that inflation has cooled enough for the Federal Reserve to potentially lower interest rates this year. The Fed has chosen to keep rates steady in its last three meetings.
Housing economists predict that the average rate for a 30-year mortgage will likely decrease further this year. However, most forecasts don't anticipate it falling below 6%.
